China Catch-Up and Two Freedoms

by Chidem Kurdas

China is expected to produce more than Japan this year, thereby becoming the world’s second largest economy after the US.   Chinese annual output is only $5 trillion compared to American $15 trillion and per person income is only a fraction of the US, but it is clear that China is catching up.

We’re witnesses to a gigantic experiment in political economy. Here is an authoritarian government that apparently recognizes the superiority of free markets, private property and individual enterprise in organizing an economy. It has lifted the shackles off industry and commerce, to an extent, so as to benefit from these powerful forces. Thus China is growing at phenomenal rates.

But freedom of expression and political dissent remains suppressed even as economic freedom expands. In the ever-resonant words of Milton Friedman, “Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised.”

The Chinese experience demonstrates that while economic freedom is as Friedman says necessary, it is not by itself sufficient to bring about political freedom—-not for several decades, anyway. Beijing’s bureaucrats have so far used one type of freedom to achieve their economic ends while brutally tamping down on the other.

China’s growth is exceptionally fast because other countries developed the products and technologies China now copies. This a common trajectory in history. Pioneering economies create the knowledge and knowhow that latecomers exploit to achieve rapid growth. America initially grew fast using British industrial technology and Japan grew using American technology.

Assuming that China continues to achieve the huge gains to be made by imitating countries that industrialized earlier, it will eventually get to the technological frontier, as has been pointed out.  Once at the frontier, growth slows down and requires innovation. China’s current political system, if it remains in place, will discourage innovation and therefore the economy will stall. But the “if” is the big question.

Economic liberty and the growth it generates will no doubt profoundly change China.  People will be more affluent and knowledgeable about other countries—Chinese tourists are already finding their way across the globe. There will be a greater area of activity free of political control. Still, there is no guarantee that China will evolve into a freer society overall.

What does all this mean for Americans? It is easy to be annoyed at cheap and shoddy copycat products pouring out of China. The Brits in their time were very annoyed at upstart Yankee copycats and tried to protect their own knowhow from imitators. It didn’t work then and it will certainly not work now. The only realistic course of action is to keep markets open and not try to block Chinese catch-up.

Aside from that, there really isn’t  much Americans can do to encourage political freedom in China— except to provide a good example by limiting their own government.

25 thoughts on “China Catch-Up and Two Freedoms

  1. Good post.

    There is another model with which the Chinese elites are familiar: Singapore. It raises similar issues in more muted form.

    Chidem poses the complexity of issues, but he reduces them to a purely economic calculation. Unlike Singapore, China is not just an economic actor. The Chinese threaten security interests of the US and its allies.

    The US could withdraw into Rothbardian isolation. Absent that, there is a political dimension to relations with China. Reagan relentesly pursued human rights with the Soviets.

    What would Chidem do about Taiwan? That relationship is governed by statute (uniquely so). And Japan?

  2. (I write as a Chinese)

    Economic concerns are at the top of priorities for the Chinese – liberty, democracy, individual rights and the like are considered to be non-essential matters. In China there has always been an abiding fear of ‘luan’ (chaos), so people can be quite willing to compromise. Such views are a result of thousands of years of social conditioning.

    Milton Friedman believed that the best form of government was a benevolent dictatorship. Historically, most Chinese are less mindful as to who rules so long as there’s peace, people can eke out a living and go about their business. For instance, not many Han Chinese were happy with Manchu rule – but the Qing dynasty lasted for 250 years.

    Today there are minor democratic experiments on the municipal level. However, it is unlikely that China would progress towards a full-fledged democracy – and having seen how democracy has hindered the West as well as Taiwan and Japan, not many would deem it desirable.

    Hu Jintao, like most of his peers and predecessors, completed his education in Russia. The next generation of Chinese leaders would have been educated in the West and have greater exposure to its practices. They could take an eclectic approach to their style of government.

    The prevalent view in the West today is that research and innovation is done in the West, and manufacturing is done in China (and other third world countries). A quick tour of the coastal cities would convince that this status quo will not continue – they are moving up the value-added chain rapidly. This adjustment could be painful for the West.

    The ‘free’ epithet is not usually applied to China, given its image deficit when it comes to media freedom, freedom of speech, etc. However, when it comes to entrepreneurial/economic activity – anything goes. There is corruption, bribery, a vague and shoddy legal system… but it can be very ‘free’, moreso than the West in some aspects.

  3. Two points:

    1. The chief advantage of America (and her Anglo-Saxon allies) is that English is the dominant language of choice, which allows them to dominate opinion-making – to dominate hearts and minds. An Arab could read Arab news, or English news – but never Chinese news. This gives America a heavy political advantage in the global game of geopolitics. So in many ways, the greatest legacy of the British empire was the English language.

    2. The other chief advantage is that the West has monopoly over the terms ‘freedom’, ‘liberty’, ‘equality’, ‘democracy’ etc – China suffers an image deficit in these aspects. Nevermind that freedom is no longer what it was in the West, there is mass media manipulation, and mass surveillance is just as endemic – but the West is still thought of as the ‘free world’; while China is deemed to be a dictatorship, an enemy of free values.

    So my view is that even considering China’s economic strength, China would find it hard to make up for its image deficit – and will certainly find it difficult to navigate the global game of geopolitics. America’s influence (or that of the Western world) will continue to dominate for some time.

    So with respect to point 2: if I were ruler of China, I would restyle the Communist party as a ‘Republican’ party or a ‘Democratic’ party once the ‘old guard’ of communists retire. I would also change the flag and the state symbols, severing the red-and-white Communist leit-motif.

    I would also institute ‘democratic’ reforms to given a sheen of government legitimacy. When it comes to democratic rule – you can have the form, but not the substance… In my opinion, only Switzerland really can lay claim to the substance; a lot of democracies are just voting in a different ruler every few years, with vested interests largely intact.

    As a Chinese acquaintance once put it to me, “Democracy is perhaps the best way of ruling a people.”

    Unfortunately, nothing can be done about point 1 – the Chinese language can be difficult to learn. Some Chinese papers do offer an English version, but it doesn’t cut it.

  4. *in the above post, red-and-white –> should be red-and-yellow

    Some thoughts on Taiwan:

    There was never any doubt that Taiwan is part of China – which is why it is dubbed the ‘Republic of China’! Some Mainland Chinese would readily admit that Taiwan is more ‘Chinese’ than Mainland China – given its role as a repository of Chinese civilization, while Mao was bent on destroying it (and with considerable success too).

    Of course, Taiwan and Tibet, etc. are paws for America. The Chinese remember the Opium Wars, which came about when the British wanted to resolve balance of payments with China back then – and they view American agitation over these issues through a similar lens. This suspicion is extended to international institutions e.g. World Bank, IMF – which they view as being fronts for Western interests.

    The younger generations of Taiwanese are less able to identify with the concept of “One China”, but economically Taiwan is becoming increasingly dependent on trade with China as America declines. It would be interesting to see how these centripetal and centrifugal forces resolve themselves. But Chinese are pragmatic – and economic interests dominate, so even if there is no official reunification there could be an unofficial one: harmonizing of laws, freer movement of goods and labour, etc.

    Not many countries in East Asia feel comfortable with the prospect of China being the regional hegemon – which is why statesmen like Lee Kuan Yew (of Singapore) are frantically encouraging American involvement in the Asian region. It is not that they trust America, but they trust China less than they trust the US. And small countries thrive best under a world order where power is distributed among different players.

  5. In America, if you have any ambition, you dare not say, for example, that women tend to be markedly less capable at certain tasks than men, and markedly less capable than others, and there is a host of other unsayable things.

    Which country then has greater freedom of speech?

    Try remarking, on any blog where the blog owner has connections to high status people, that the FHA has been tasked to shovel out steaming piles of mortgage money, and has also been tasked to pile it out only to those who will pay it back, but finds that those who will pay it back will not borrow – your post is likely to disappear, for we all know that civil servants only do that which is right and proper. Among those in America who have hopes for higher status, it is harder to hear criticism of government employees than Chinese criticizing the communist party.

    The big difference is that in America, there are blogs by people who don’t care, and they don’t get punished, so at the bottom it is more free, but at the top, there is as much silence and self censorship as in China.

  6. This brings up one of all-time favorite pet peeves, namely the concept of “political freedom.”
    There is economic freedom, per Friedman, and there is political power, per Rothbard, but there is no such thing as political freedom, nor is there such a thing as economic power.
    An economic act implies free exchange, whereas a political act implies coercion by the criminal entity known as the State, which is the definition of power.
    And while we’re on the subject, had Ron Paul been elected prexy, the proper response by libertarians would have been to demand his immediate resignation, after a decent interval (like 24 hours) during which his libertarian charges would have been (1) to fire every government “employee” he could fire, and (2) to denounce the criminal entity known as the State.

  7. James A. Donald,

    Though I agree with you to some extent it’s worth remembering what freedom of expression has traditionally meant. It hasn’t meant that private actors cannot change their behaviour towards a person because of what they have said or written. It has meant that the state can’t punish them, and that the legal situation of that person doesn’t change.

    It has *always* been the situation that if a person says something that is considered contrary to the mores of the time then other people can discriminate against them.

    The situation is not all that bad, folks like Roissy and Steve Sailer still get a look in.

  8. Jerry,
    Reagan’s policy toward the Soviet Union is an interesting model, as you point out. However, there is an immense difference between China’s roaring economic success versus the Soviets’ long-time stagnation. It is not clear that the Reagan approach would be useful under such sharply different conditions.

  9. anon– Re “Today there are minor democratic experiments on the municipal level. However, it is unlikely that China would progress towards a full-fledged democracy – and having seen how democracy has hindered the West as well as Taiwan and Japan, not many would deem it desirable.”
    People mean different things by the word democracy. Leaving that aside and taking a long term view, Taiwan and Japan have done well despite their current problems.

  10. Bill Stepp– point taken but I don’t see the need to change the long-established usage of words.

    As the Duchess says in Alice in Wonderland:
    “Take care of the sense, and the sounds will take care of themselves.” I think Friedman’s sense is solid, whatever one wants to do with the sounds.

  11. re: chidemkurdas

    Taiwan and Japan’s achievements, as well as the other Asian tigers – Hong Kong, South Korea, Singapore etc., have nothing to do with democratic reforms. Economic growth preceded democratic reforms much earlier (some of which was carried out at the behest of America political pressure).

    Democracy is not freedom, even though they are often confounded as such. In fact, democracy can instead be inimical to freedom – one only needs to look at history and see that most dictators have been elected through some democratic process, or gained democratic approval (e.g. Stalin, Mao, Hitler, Soekarno, etc.).

    Democracy is but a means towards an end, it is not an end in itself and perhaps can be dispensed with.

    In the case of Hong Kong, Hong Kong has had its economic freedom whittled away due to the institution of democratic reforms. Hong Kees these days have an increasing sense of entitlement, that the government is increasingly expected to provide. There were never such attitudes when they were under the British, from whom they only expected meagre protection from the communists.

  12. I am no China expert, so this post is inquisitive and not declarative. From my limited familiarity with literature on economic development, I believe there is something of a consensus that the rule of law, which is more cultural than political, and security of private property, are prerequisite for stable, sustainable growth. To what extent are they a reality in China today?

    I have read that reported economic data from China is not nearly as reliable or transparent as that of Western nations. How likely is it that actual production numbers and economic growth numbers are significantly less than reported? What is to prevent the Communist Party from using creative accounting to overstate their results, motivated by political ends?

    Finally, if those in the West who contend that a broad prosperity and widespread access to global information will lead to a groundswell of political resistance to the Communist regime, what does that portend for the economic and political stability that presumably are necessary as a foundation for continued economic progress?

  13. Good questions, James Pier. I don’t pretend to have the answers.

    However, in the matter of economic data, I think one can safely take it that Chinese output has been growing rapidly, even if the exact numbers are not reliable. The GDP growth rate may be overstated, but other evidence point to a vast economic expansion. Chinese exports show up in other countries’ accounts. And the rising affluent middle class as well as numerous business establishments have been observed by many people who visit the country.

  14. Re private property, one does get the impression there is sufficient security for individuals and families to be willing to accumulate capital. Looking from the outside, most Chinese appear to believe that Beijing is not likely to confiscate their property,though there may be exceptions.

    Beyond that, the rule of law looks doubtful. That probably is the key question.

  15. re: James Pier

    As Lee Kuan Yew puts it, Chinese use “guan xi” (relationships) to “make up for the lack of the rule of law and transparency in rules and regulations”.

    A good excerpt:

    It might dangerously close to nepotism, and the absence of a proper legal framework raises all kinds of fairness and ethical issues. But as the excerpt explains, throughout history the Chinese have never been rigid about laws – a lot of agreements being arrived at informally, and on the basis of interpersonal relationships. It is not necessarily deemed unethical.

    ‘Guan xi’ reigns in other East Asian nations too – but to a lesser extent. This includes Japan, Taiwan, South Korea. The flipside is that it can pave the way for corruption.

    For that reason, most Western companies will continue to be based in Hong Kong – which inherited their legal system from the British.

    This lack of legal transparency might discourage foreign investment in China – but they are increasingly less reliant on it. China has 1.3 billion people, and its huge economy can be self-sustaining. For smaller countries, they would find it difficult to get away with this.

    Western governments do things a bit differently. When they want to trample of property rights or economically disadvantage foreigners, they do it by tweaking the laws.

    I think Lee Kuan Yew’s second book of memoirs – From Third World to First – is a good book for reference. He dedicates a chapter to each country he had dealings with, and thoughts on their respective political economy. It is very insightful.

    The idea of political resistance against the communist regime is far off in the future. The reality is that the rural Chinese are happy, urban Chinese might be more vocal but they can “live with it” – there’s good food, good gadgets, good jobs.

    There is no discontent – and even if there were, technological advances have allowed the government to be very ‘vigilant’. ‘Resistance’ groups which brought about the fall of various Chinese dynasties tend to be based in the fringes of the Chinese empire – where they could quietly build up their military capacity over years. Today this is less possible.

    Mainland China went through a century of tragic political experiments, and I think people have decided they’ve had enough.

  16. anon, that’s a useful review. Your argument that relationships will continue to make up for the lack of rule of law sound plausible. Societies have been known to live and even do well with a high level of corruption–Italy is a possible example. There comes a point where cronyism and bribery constrain further development, but China may be along way from that point.

  17. I would think that most societies first functioned on a relationship basis, after which only a proper legal framework emerged.

    Until not too long ago, societies were largely illiterate (including China) – so people might have been less inclined to have recourse to the legal system, and instead be dependent on trust between individuals. The Chinese have traditionally placed heavy emphasis on trustworthiness.

    You might be aware of the recent tussle between Rio Tinto and China. About a year ago, Rio Tinto used the Chinese to avoid bankruptcy – they later announced a joint venture with BHP Billiton, all the while deceiving the Chinese on the state of negotiations. Effectively they took the Chinese for a ride, and made them out to be fools.

    What Rio Tinto did was perfectly legal, but immoral – and the Chinese took out retribution. My point was that what constitutes as legal is not necessarily moral, and vice versa – and Chinese emphasis is on the moral part. Rio Tinto certainly deserved what was coming to them (in fact, it was only a light slap on the wrist i.m.o.).

  18. I agree with you that trust between individuals is a strong basis for business dealings as well as other social relationships. In fact it is a more efficient way to organize relationships than frequent recourse to a legal system. Legal systems are expensive, involve third parties with their own interests — lawyers — and are crude in their operation compared to moral systems.

    But all that is about relations between individuals. Relations between the state and individuals is a different story. If there is no legal constraint on the state, then the state can develop absolute power. As has been long observed, power corrupts and absolute power corrupts absolutely.

  19. I’m not implying that any of these issues is specific to China. Because it is such a dramatic instance of economic catch-up, China makes a very intriguing case study. But there are many other examples.

  20. “It has *always* been the situation that if a person says something that is considered contrary to the mores of the time then other people can discriminate against them.”

    It has not always been the situation that if someone says something contrary to the mores of the government his employer will be sued for “a hostile environment”, and will wind up paying millions of dollars to activists supposedly representing the group supposedly defamed.

    The US government uses anti discrimination laws to perform an end run around freedom of speech.

  21. re: chidemkurdas

    Yeah, you’re right. Restraints on ’emperors’ (or the state – though they are not the same) in the past were largely not legal in nature – there were political concerns, power-fights, factions… perhaps not too different from ancient European monarchies.

    And there were technological constraints – no mass surveillance, no wide-gap between state and civilian capabilities… in a large empire with many competing interests, you cannot monitor everything. If the state were to deteriorate too much, resistance movements would naturally proliferate and gain momentum.

    And it’s always easy to overturn a monarch and his band of men, than an extensive system of government with many interconnected interests (corporate, political, banking, etc.)

    The situation today is quite different. The technological constraint i.m.o. had been of chief importance – so technological progress has been a blessing and a curse from this point of view.


  22. Some Chinese view the rise and fall of dynasties like a natural cycle – it’s like a ‘rebirth’ and is healthy (so long as you’re in some other part of the world when it occurs).

    The old system is destroyed, and society begins anew.

    This is in the contrast to the democratic ideal, which allows for peaceful transitions of power between different groups of people – each tweaking the system, retaining the good and removing the bad. Unfortunately it hasn’t quite worked out that way.

    Things have changed a lot since the early 20th century – our industrial capabilities, scientific advancement, international institutions, different interests… And these changes have had their bearing on political economy. A lot of the workings, the principles of the political economy of old no longer applies today.

  23. True, anon, economies, technology and institutions have changed a lot. But human nature has not. We still have the same emotional propensities and mental potential. Because of that, basic ideas about social arrangements such as markets and constitutions still apply. And thinkers like Milton Friedman still resonate.

  24. > It has not always been the situation that if
    > someone says something contrary to the mores of
    > the government his employer will be sued for “a
    > hostile environment”, and will wind up paying
    > millions of dollars to activists supposedly
    > representing the group supposedly defamed.

    That’s true. That is an unwelcome recent development.

    I’m pleased that I’m self-employed, so I can say what I like.

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